Priceonomics

"Buy low, sell high. Fear? That’s the other guy’s problem."

 - Louis Winthorpe III, Trading Places (1983)

Here’s a story about the time we made $300 in profit buying used Aeron Chairs on Craigslist and reselling them to our Y Combinator classmates at marked up prices. Basically, we were experimenting if we could make a business out of arbitraging used goods. In short, we learned that lugging furniture around the Bay Area didn’t seem to be an especially scalable business model.

For a little back story, Priceonomics is building the price guide for everything. Just like Kelly Blue Book creates price reports for cars, we do the same for bicycles, computers, phones, tablets, cars, and much more. We are participating in Y Combinator’s upcoming Winter 2012 batch and we decided to launch one week before the term started (about a minute after we had a minimum viable product). 

Our immediate aim is to figure out fair price estimates for every product ever built. Our longer term goal is also to some day make money (Rohin went to business school and he vaguely remembered learning that was important).  As a result, we try to run various “business model experiments” to figure out how one day we’ll make money. 

Our first experiment we dubbed “Craigslist Arbitrage.” To do this, we would identify products with steady demand but high price variance. We could then buy items that were posted at bargain prices and later sell them at the market price. Also, much of our team takes particular delight in Craigslist scavenging. Michael furnished most of his apartment from the free section of Craigslist. Rohin once bought a bike for $300 on Craigslist which he then resold for $900 a week later after realizing he didn’t like it. So basically Michael and Rohin were looking for an excuse to do what they like - buy and sell stuff on Craigslist. 

Rohin's Bike From Craiglist

Trek 5000 bike Rohin bought and resold on Craigslist.

Perhaps because we were sitting on extremely uncomfortable chairs at the time, we decided to focus on Herman Miller Aeron Chairs.  There’s a fairly steady demand for these chairs in the Bay Area, particularly among web startups. Whether Aeron chairs are good chairs or are worth the money is perhaps best discussed by others. 

We fired off an email to our YC batch with a simple proposition:

Subject: Aeron Chairs for $450 from Priceonomics Delivered to You

Greetings compatriots,

For the first few companies that email me back, Priceonomics will help source and deliver to your office used Herman Miller Aeron Chairs for the price of $450 per chair.

New Aerons are $869 on Amazon [price updated from original].  The median price for good-to-excellent quality Aerons on Craigslist in the bay area is $450 according to our Priceonomics data [price updated from original]. You need to sift through a lot of spam just to find those ones!

We’re dog-fooding our data to try to cherry pick the underpriced chairs that are listed on Craigslist or eBay.  We suspect we can use this method to source them for around $400, netting us a tidy profit of $50 per chair. We’ll take 100% of this profit and put it in a beer fund for all to enjoy.

If your company is interested, just email me how many chairs you need and I’ll follow up to confirm sizes with you.

Best,

Rohin

Within an hour we got orders for 5 chairs and about 50 other emails protesting that true hackers practiced stark asceticism which did not include sitting on the same chairs investment bankers used. We shrugged off the ascetics and heartily got to work sourcing some chairs from Craigslist.

At this stage, Priceonomics could answer “what’s a fair price for this Aeron Chair” but not quite “find me the lowest priced Aeron chair near me and make sure this is not spam.” So to find the chairs, we just kept our eyes on Craigslist through conventional means like RSS alerts or checking the site manually.

Our Priceonomics estimate for the Aeron Chair Size B was $450 with a range of $349 to $549. In practice we found the range to be more like $400 to $600 in San Francisco. Since we weren’t time constrained, our plan was to only look at listings that we could reasonably expect to purchase for $375 to $400 (netting a profit of $50 to $75 per chair).

Herman Miller Aeron Chair Size B

Almost right away we hit Craigslist gold. A video editing company was moving out of their office in the Mission and they had 23 chairs available for $400 each. Before we could jump at this awesome opportunity, we had to get around the fact that none of us owned a car. Luckily, one quick call to a supportive girlfriend and we were on our way to buy some chairs.

Here’s where things got less than scalable:

1. We came to a room filled with 23 chairs and had little idea as to which were in proper functioning order. We spent about an hour sitting on the chairs and testing the various levers.

2. We negotiated with the seller and eventually got him down to $375 per chair. He was only willing to sell us four chairs because he wanted to keep the rest for the new office. Doh, now we need to find another source to buy that 5th chair!  Out of pocket, we had to write a check for $1500 (which is kind of a lot of money).

3. Aeron chairs are extremely heavy! As Michael noted as he attempted to lift a chair in to the car, “I’m glad I have a desk job.”

4. We had to drive through SF rush hour traffic to deliver the chairs to another startup. Had to carry these very unwieldy chairs up a flight of stairs.

5. Got a check from the chair buyer for $1800. Go to bank to deposit check. Bank says “this check has the wrong date on it, we cannot accept it.” Email our chair buyer in a panic and inform them of the situation. Chair buyer graciously and quickly PayPals us the $1800.

Ultimately, we made $300 in profit for about 3 hours of very manual work. We quite nearly lost $1500 though when the check didn’t clear. If any one of the chairs had been defective, our profit margin would have disappeared. The order for the 5th chair fell through. Our backs were quite sore the next day.

Office chair

Priceonomics team at work. Omar on $450 chair. Michael on $1 chair. Rohin behind camera.
So what did we learn from this? It’s unlikely Priceonomics could build a massively successful business arbitraging used goods if we have to take possession of them. However, it was clear that having our price guides were really helpful for identifying what were the good deals on Craigslist and how much to pay for them. So for now, we’ll just stick to building better price guides to help other people buy things on Craiglist, eBay, and other emerging marketplaces like Zaarly and TaskRabbit.

We may not have found a killer business model through the experience, but at least we now have $300 in the beer fund.

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This post was written by Rohin Dhar. Follow him on Twitter here or Google. Get the latest from Priceonomics on Facebook or Twitter.

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